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Major projects in GCC delayed to benefit from reduced construction costs
In order to take advantage of the steady decline in construction costs, the Gulf oil producers are delaying few of their projects, particularly in energy and other sectors, reveals a Saudi financial center.
Despite having sufficient cash to fund their planned expansions, the state-owned companies in the six GCC nations are still putting on hold few of their projects, as it will get more difficult for contractors to receive credit to finance their work, explains the report by the center.
The short-term outlook for oil prices have worsened, owing to global financial crisis, but has seen improvement in the medium and long term, due to the fact that higher cost of raising finance together with lower crude prices will reduce the attractiveness of alternative energy sources and non-Opec supply.
The bulk of increments to non-Opec supply usually come from the private sectors, which is currently facing problems in raising the required capital.
The cash-rich national oil companies in the region will benefit immensely from the lower cost of raw materials and contractor costs, and the inevitable postponement of similar work elsewhere.
Few projects in the region have already been put on hold, to make use of the lower costs, and this is likely to delay their implementation.
The report said that prices of most petrochemical projects have dropped by two-thirds since July. About $120bn worth of investments in petrochemicals is being planned or is currently underway throughout GCC. The falling prices, higher costs of financing and falling demand, has raised questions about viability of projects, and it has been reported that about $20bn worth of petrochemical projects are currently put on hold in the Kingdom.
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